The bulk carrier market may see a full recovery in 2018

BIMCO predicts that the dry bulk shipping capacity will increase by about 1% in 2018, the lowest growth rate since 1999, while market demand may increase by 5%. The market demand for dry bulk carriers in 2018 will exceed supply growth. This means that dry bulk ship owners finally have a chance to breathe, and the dry bulk shipbuilding market and Chinese shipyards will also usher in a "warm winter."

The market demand for dry bulk carriers in 2018 will exceed supply growth.

BIMCO recently released a report stating that since the dry bulk fleet is expected to grow at the expected demand growth rate in 2019, the future development of the dry bulk market must be based on improving the basic balance.

In 2017, China's imports of bulk commodities, especially coal and iron ore, increased significantly. In the second half of 2017, many dry bulk ship owners and operating companies began to profit. If similar demand growth (such as a 5% increase) is achieved in 2018, the shipping industry will be profitable next year.

BIMCO points out that this is the first time since 2012 that the shipping industry has reached the industry average. The agency predicts that market demand growth will reach 5% for the whole year of 2017, fleet capacity growth will reach 3%, and the fundamentals of the shipping market will improve.

On December 12, the freight rate for Capesize bulk carriers broke through the US\$30,000 mark, setting a four-year high. In the third quarter of 2017, freight rates for various types of bulk carriers increased, and the vessels operating in the market successfully made profits in the third quarter. Currently, the charter rates of dry bulk carriers deployed in the spot market are already able to cover costs.

Keith Denholm, managing director of Singapore's Lorentzen & Stemoco, recently said that the outlook for the dry bulk shipping market is optimistic. He pointed out that the shipping market has a stable growth trajectory, steel prices are soaring, raw material prices are relatively low, China lacks high-quality coking coal and iron ore, and imports will continue to grow. Many previously idle vessels are now returning to the market.

Similarly, in the dry bulk shipping market, Angad Banga, chief operating officer of Caravel Group, said that market fundamentals have improved. Banga said that coal and grain transportation has grown significantly, and China's potential demand is strong.

However, Peter Sand, BIMCO's chief shipping analyst, also emphasized that controlling the growth level of the fleet and accelerating the scrapping of excess capacity are key factors in the market recovery in 2018. The recovery of the dry bulk market in 2018 may not be as strong as in 2017. If the sustained recovery is not properly handled, shipping companies will have to wait until 2019 to make a profit.

However, currently, the demolition activities in the dry bulk market are weak, and the dry bulk fleet continues to grow, which may hinder market recovery. Since the fleet growth in 2018 is expected to be around 1%, the current market focus is shifting to maintaining slow steaming. If the average speed of ships increases significantly, the market recovery will slow down. He added that with the seasonal decline in business volume, the shipping industry has carried out a series of demolition activities to avoid a long-term decline in freight rates.

        Dry bulk carrier prices are rising, and the newbuilding market is fully launched.

As the dry bulk market gradually recovers, dry bulk carrier prices have begun to rise, and the dry bulk newbuilding market has been fully launched, and new ship orders have increased significantly.

Clarkson's latest data shows that in November, except for the new price of Handysize bulk carriers remaining flat compared to October, the new prices of other bulk carriers increased month-on-month. Among them, the new prices of Capesize, Panamax, and Supramax bulk carriers increased by US\$1 million, US\$500,000, and US\$500,000 respectively to US\$44 million, US\$25 million, and US\$24 million, while the new price of Handysize bulk carriers is US\$19.75 million.

Data shows that in the first 11 months of this year, new orders for dry bulk carriers totaled 211 vessels, with a total of 24,118,473 deadweight tons; while in 2016, the total orders for dry bulk carriers were only 55 vessels, 14,006,437 deadweight tons, a significant year-on-year increase, of which nearly 70% of the dry bulk carrier orders were received by Chinese shipyards.

Data from shipbroking companies Braemar ACM and Intermodal show that this year, Ultramax bulk carriers are among the most popular bulk carrier types in the order boom. Intermodal said that in the first 11 months of this year, new orders for Ultramax bulk carriers have almost tripled compared to the same period last year. The surge in orders for Ultramax bulk carriers is also reflected in the price. The construction cost of Ultramax bulk carriers has increased more than any other type of bulk carrier, increasing by 13% since January this year. As of November, the construction cost of Ultramax bulk carriers has reached approximately US\$25 million, while the average price in 2016 was US\$22.8 million.

The "cold winter" of the dry bulk market has ended, and the "spring" of Chinese shipyards has arrived ahead of schedule.